The "Daily Call" From Option Alpha

Latest Episodes:

#121 - The Hidden Statistic About Goal Setting You've Never Heard Jan 21, 2018

Show notes

Hey everyone, welcome back to the daily call. This is Kirk here again at Option Alpha and today, I want to share with you guys this hidden statistic about goal-setting that you've probably never heard of before. In fact, I didn't even hear about it until I knew it was out there, but I didn't hear what the research was on it or didn't see actual concrete numbers on this until just recently and I was reading another book because I just read lots and lots of books and saw this and I was like, "Man, I got to share this with everyone because it's so, so powerful." I know we're 20 or so days into January in 2018 here and so, you've probably hopefully already set some goals, but it might be better to do just this one thing as you get started this year and help out. I've realized even just listening to this and reading this statistic about goal-setting that I'm basically already doing this in a way and I'll talk about that here in a second which I think now, looking back on it has really helped me out. It's really allowed me to excel to a different level and hopefully continue to excel in both my trading and wealth and knowledge and all of this stuff which has been really good.

Here's the deal. You may have seen and there's a lot of research on this, but there's one done by Professor Doctor Gail Matthews. He researched individuals that did goal-setting for many, many years and what he found is that in part of his research… This is what you hear oftentimes, is this first part of it, but there's a second hidden part to his research that's not often talked about. The first part of his research, he found that people with written goals were 39.5% more likely to succeed than people who didn't have written goals which is crazy in and of itself because if you think about it, just the act of writing down your goal, like the 10 minutes that it takes to write down your goal increases your odds of actually hitting that goal by 39.5%. You want a huge improvement in your life? Frankly, just write down a goal and look at it and that's in and of itself very, very powerful. But look. 39.5% more likely is still not a huge number. I mean, it's more likely than doing nothing, it's better than doing nothing, but it's not a lot of action, it's not any accountability.

What he found though and what's more to the story that people don't often see is that when you dig through the research, you found that when he actually tracked people who sent their goals or reported on their goals to somebody else, a friend, a family member, a coworker, an accountability partner, a coach, when they sent that person weekly or monthly or progress reports, quarterly progress reports on how they were doing and what steps they were taking to achieve their goal, they were 76.7% more likely to achieve them than somebody who's not doing that, so a huge… If you think about the big things that you need to do, the big levers that you need to push or pull to make changes, in this case with goal-setting, it's not about just writing it down. Writing it down gets you the first step, meaning you want to take another giant leap forward in progress. Have somebody that is your accountability partner in your goals and send them progress reports. Initially, maybe just quarterly or even weekly or monthly to let them know where you are in your goal-setting journey, in your journey towards I guess achieving the goals that you set out initially during the year.

All this does is it gives us this accountability, this mentorship that we need, that self-imposed that basically fuels enough fire for us to actually go out and do something about it. It's this ongoing accountability help that lets us keep going and have the consistency that we need to achieve our goals. And so, what I said initially is I realized that I've already been doing this and this is part of the reason why I still run Option Alpha and I feel like I need to be doing this not only for you guys, but personally for me. It helps me out an insane amount because now, I've got 78,000 accountability partners. When I send out my trades or post performance or do any of this stuff, post my goals about what I'm doing, I have often been known to say, "Look. We're going to start back testing this. We never had plans to do it, but I know we're going to do it. We're going to figure out how to do it. We're going to set the wheels in motion to buy the data and develop the team and run the test and put it together." That sometimes is never more than just putting it out there and saying, "Look. This is what we're going to do." And then I start figuring out how to piece it together. And so, I think that maybe you could do that too and if you want, you can share it with me. I'm not going to follow up with you and be your accountability partner and check in on you and call you every week. But if you want to share them with me and I can be the person that you share it too and who have some accountability, I think that's great.

I think people in our community… I know pro and elite members in our forum, they oftentimes will share their goals with one another and say, "My goal is to complete five tracks by the end of the week or to start making 10 trades or to go through my first earnings season with 10 trades or whatever the case is." But it's so, so fascinating that just the act of sending it to somebody else or having some sort of accountability partner and coach can make such a huge difference. I really believe that most goals are inevitable that you should set goals that you can inevitably reach. It's probably unrealistic to say, "I want to fly to the moon." unless you're an astronaut and you're in that space. But set goals that you can realistically reach and then realize that they're inevitable to reach them as long as you have the right steps and the right processes in place, that you build the right habits, that you have the right consistency. It seems like at least just sending those goals to somebody else or having them check in on you is a huge step forward in being able to achieve them. Maybe today, the takeaway is – If you haven't already, get you goals in place, get your action steps in place for this year and then send them to somebody. Have somebody be accountable to you this year and be accountable to them. Maybe you guys can trade-off and you guys can tag team this and you're their partner, they're your partner, whatever works best for you guys.

I want to share this today because I thought it was really helpful, especially as we're at the beginning part of 2018 and just going forward in the future. As always, hopefully you guys enjoy these. If you have any questions, comments, any other things you guys want to talk about or topics around this, let us know. We'd be happy to do more shows on this because I love this whole concept of goal-setting and progress and tracking and performance. All very cool stuff, stuff I geek out on for sure. Until next time, happy trading!

#120 - Dividend Assignment Risk For Short Call Options Jan 20, 2018

Show notes

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. On today's daily call, I want to talk about a really hot topic which is dividend assignment risk for short call options. This is a topic that we have videos and training on, but again, I wanted to get another avenue of teaching this out, so that people understood how to effectively navigate this scenario because I think it freaks a lot of people out. What usually happens is the brokers would send you a notice or an alert that says, "Hey. You have a short call option that's at risk of assignment." People basically throw their hands up and say, "What the heck is going on?" I usually get these emails which is maybe why you're even getting this podcast link or maybe I sent you a link to this podcast because what people do is they throw their hands up and they're like, "What the heck is going on? I'm going to be assigned. I don't have the capital to handle it." Here's what happens and I want to walk through this process, so you understand it. Please, please, please, if you're listening to this right now, take the time to understand this. This is one of those concepts where if you understand this concept right now and just take maybe five or 10 minutes, however long it takes me to explain this. If you understand this concept now, it saves you so much headaches in the future. Just really hone in on this and try to understand this ant it'll set you up for the rest of your life.

Dividend assignment obviously happens when a stock or an ETF has a dividend payment coming up, so if they have quarterly, if they have monthly dividends, semi-annual, annual dividends. It's only going to happen and you're only going to be faced with this scenario if you have an underlying that you're trading and it has a dividend payment coming up. In particular, it's only going to affect your short call options. Again, it's only going to affect your short call options. It will never effect any put options. It will never affect any long call options because you're a long call option buyer and you have the choice to exercise or not. Again, it only affects short call options and in particular, (now we're starting to get even more granular here) it's only going to affect short call options that are in the money, meaning that the stock is trading higher than your short call strikes. Let's say the stock is trading at $100, you sold a call option at $95 and the stock rallied up to $100, so now your option is in the money. That's the one that's going to be at risk of assignment. You can see there's already a very, very small window here where this impacts people, but it does and we have to understand it. We have the short call option that's in the money, the stock is about to pay a dividend and now, the option buyer to your short call option… The call option buyer has the choice to basically assign you and force you to sell the stock, so that he can buy the stock and collect the dividend. That's basically what happens. If that is the case, then we have to understand the logic behind why they bought the call option in the first place and what the goal was in doing that. I think a lot of this comes down to understanding what the position is of the long call option buyer and then why would they want to go through this entire process, why would they want to deal with the stock now when they didn't want to deal with the stock to begin with. That's really the first I guess roadblock that we have to cross in this example.

If the person that was buying the call option didn't have any other thought processes of wanted to control risk in any way, they would've just bought the stock to begin with and we wouldn't have had this conversation. But they bought a long call option because they wanted to do two things with this position. One, they wanted to reduce their downside risk. If they bought a long call option, they wanted to reduce their downside risk at anything below that strike price. If you look at a payoff diagram of a long call option, it has reduced risk which means that you don't lose any more money if the stock goes below your short strike. In our case, in our example that we're talking about right now, the strike price on the option contract is 95, so the long call option buyer doesn't lose any money if the stock is below 95. They lose their premium that they pay, but they don't lose any more money beyond that. It's flat. The second thing that they wanted to do is they wanted to maintain all of the upside potential. This is what usually sucks a lot of people on a long call option buying, is that they have limited downside risk, not including their premium that they paid and they have all this upside potential. If the stock rallies, they participate in everything above 95. The stock goes to 100 or 120 or 200, they participate in all of that. That's what they wanted to do. Again, they didn't choose to do stock initially. With that context in mind that they wanted to have no downside risk below their strike price of 95 and all upside potential, you have to then assume… It's best to assume that that option buyer, if they were to go through this entire assignment process, exercise their contract, assign you, buy stock from you, your short stock, they want to go through this entire process that they would want to get back to the same general position that they started to begin with. They wouldn't do this unless they have ability to get back to the same general position that they started with which is reduce downside risk below the short strike and all upside potential. Hopefully that makes sense. If it doesn't, rewind it a little bit just so we get the concept really down. Now, the stock has a dividend payment coming up and let's say that that dividend payment just for the sake of argument is going to be $.50. It's going to be $.50, is going to be the dividend payment, so every share will get $.50 or basically, if you have 100 shares, you would've gotten $50 in dividend payment, whatever the case is.

Now, here's how you associate that risk of assignment. What you're going to do is you're going to look on the pricing table for your short call option. Your short call option again is at a 95 strike. The stock is trading at $100. You're going to look across the pricing table and see what the 95 put option is trading for. Again, you're going to look across the pricing table and you're going to look at the same strike price, but on the put side and see what the 95 put option is trading for. In this case, let's say that the 95 put option is trading for $.30. Right now, if you wanted to, you could go out and buy a put option for $.30. The corresponding put option to your call is trading for $.30. In this scenario… I'll walk through why this is in a second. But in this scenario, your short call option would be at risk of assignment and the reason that it's at risk of assignment is because if the long call option buyer were to exercise his position, if he were to exercise his call option, he would be assigned shares or would be long shares at 95. That's what he wanted initially. That's what a call option does. He's long shares at $95, the stock is trading at $100, but irrespective of everything else at this point in the process, he also has all of the downside risk of being long stock at $95. It would just be like you bought stock at $95 and you have all the same downside risk. Now remember, that's not his initial intention. The initial intention was (because he did the long call option) to have no risk below $95. If you think about that, what he would want to do to convert that position into a similar long call option type position, but now with long stock is he would buy a put option at a 95 strike. Hopefully a lot of light bulbs just went off in your head. There's no difference in the payoff diagram between a long call option and long stock with a put option at the same strike. If he was long stock at 95 and also bought a put option at a 95 strike, he would effectively be in the same payoff diagram that he was in with a long call option. It's the same payoff diagram. If the stock goes down in value, it is protected by the long put option he bought at the 95 strike. Hopefully that concept just makes sense, like why he would go through this assignment process.

Now, here's where the pricing comes into play. Remember, if he is going to assign or exercise his contract, collect the stock or basically buy the stock effectively at $95, he would then be eligible to collect the dividend payment of $.50 per share. If he was to collect the dividend payment of $.50 per share, he could use part of that dividend payment to buy that put option contract. He's basically financing that put option contract which again was $.30 in this example. He's financing that put option contract with the dividend that he collected. He collected a $.50 dividend, the put option is less than the value of the dividend, so the put option is $.30, he pays $.30, gets his protection back in place basically, reestablishes his protection and he still has $.20 left over as additional profit. Now, he's long stock, he has a long put option at 95, effectively, the same position that he had before payoff diagram wise, but he's also pocketed an extra $.20 because the dividend was $.50 and the long put option was $.30. Does this make sense? Here's the underlying crux of how you can evaluate this and then we'll go through an example of why he wouldn't go through this assignment process. If you look at your short call option, if the corresponding put option is less than the value of the dividend being paid, you are at risk of assignment. I'll say it again. If the corresponding put option at the same strike to your short call is less than the dividend being paid, you are at risk of assignment because the option buyer to your call option could exercise his contract, be long stock, collect the dividend and pay to reestablish his protection via the long put option and still have money left over. And so, theoretically, a smart investor would do that all day, all night. It's the same position, but he pocketed some extra money from the dividend.

If that's the case, then here's the other example that you need to understand or here's the other side of it. If the put option to your corresponding short call is more than the dividend being paid, you are not at risk of assignment. I'll say it again. If the put option that is corresponding to your short call at the same strike is worth more than the dividend being paid, you are not at risk of assignment where there's a very low chance that you could be assigned. Why is this? Let's say now as a new example that the corresponding 95 put option to your short 95 call is trading for $.70. Remember, the dividend being paid is $.50, but that put option is $.70. If he was a logical investor which they're always like… If they're logical and most cases they are… They really are once they go through this process. If it's a logical investor, if he were to exercise his contracts and go long stock at 95, collect the dividend of $.50, he'd have to pay out more than $.50 to buy that put option at 95 and reestablish his risk protection. Basically, he'd be in a better position. He would lose less money if he just didn't exercise his contract. Just forego the dividend, don't collect the dividend, don't deal with the stock, don't deal with buying the put option because it's cheaper not to do anything in that case. The long put option protection is more expensive than the dividend that he would be paid, so he's not going to do it. He's not going to assign the contracts. He's not going to exercise his position because it's not worth it for him financially to pay money to get back into the same position, if that makes sense. The key here with dividend call assignment or dividend assignment risk for these short call options is the value of the dividend and how that relates to the corresponding put option. Just to recap it one more time. If the corresponding put option is worth less than the dividend being paid, you're at risk of assignment. If the corresponding put option is worth more than the dividend being paid, you're not at risk of assignment.

I know it went a little bit longer today on this daily call, but again, it was so, so important that you understand this concept. Please go back and re-listen to it five times, ten times if you need to. If you don't understand it right now, obviously let us know. Ask us questions. It's a really important concept. Again, these brokers, they have to send out these assignment risks just to let you know, but that doesn't mean that it's going to be assigned. It just means that you have a short call and a dividend is coming up. Basically i.e. check your position, make sure that you're okay, whatever the case is. Hopefully it helps out. As always, if you have any questions or comments, let us know. Until next time, happy trading!

#119 - Bullish, Bearish Or Neutral - Does It Really Matter For Traders? Jan 19, 2018

Show notes

Hey everyone, welcome back here. It's Kirk here again at Option Alpha and in today's daily call, I want to talk about being bullish, bearish or neutral and answering the question, "Does it really matter for traders?" I'll answer this question in two parts which is yes and no. You're probably thinking to yourself, "Well, Kirk, that really doesn't help." But let me explain why I answered yes and no to the question, "Does it really matter?" Ultimately, I believe that it does not matter what direction you trade the market. When it comes to options trading, it doesn't matter what direction you trade the market because you can build an option strategy with the same probability of success and the same general risk parameters in any direction.

Let me explain. If you are bullish on a stock, you can sell a put credit spread with a 70% chance of success and now, you are bullish on that underlying stock. If you're bearish on that stock, somebody else could come in and sell a call credit spread and be bearish on that stock and setup that call credit spread to have a 70% chance of success as well. If somebody else is different and comes in, now this third trader comes in, they could setup a neutral iron condor that has a 70% chance of success where they don't really care where the stock goes as long as it goes within their range. The same stock, three different expectations of where the market might go, bullish, bearish or neutral, but yet, with options trading, you can setup generally the same probability of success, the same risk reward parameters in any direction.

We've done tons of videos on this, so if you want to see another video on this, just search the website or search YouTube. We've actually gone through and priced these out and you can see it's very, very similar, like very, very small differences in pricing, but you can set them all up for about a 70% chance of success, same general ability to make money versus risk, etcetera. On that end, it does not matter on an individual trade by trade basis whether you're bullish, bearish or neutral. What I always tell people is just pick a direction. It doesn't matter whatever technicals you want use, use technicals. If you want to use moon signals, smoke signals, whatever, your kid's sleep schedule, whatever you want to use as your reason for being bullish, bearish or neutral, it ultimately doesn't matter as long as you're setting up a high probability trade, you're selling options, doing everything that we teach at Option Alpha. On an individual trade by trade basis, it doesn't matter for traders what direction you choose.

Now, where it does matter… This is why my answer to this question is two parts. It does matter when it comes to your portfolio. If you have an entire portfolio built of all bullish trades, that puts you at a greater risk than if you had a portfolio that is built with a combination of bullish, bearish and neutral trades and this is not something that's theory. If you think about it logically, if you have let's say an entire portfolio built with bullish trades that have a 70% chance of success, everything in your portfolio has a 70% chance of success, but is bullish, then that means that when the market rallies, you do very well, but you put yourself at extreme risk that if, God forbid, the market had a dramatic move down and all of your positions are one-sided, meaning all bullish, there is that opportunity where all of your positions at the same time could go bad and that is not a good recipe for long-term consistent income trading options.

What I suggest people do is make sure that their portfolio is built with neutral, bullish and bearish positions. If you want to be bullish on one thing, that's fine, be bearish on something else. If you want to be neutral on something, fine, just be neutral in the context of your portfolio. Have an understanding of where your overall portfolio is situated. Are you too bullish? Are you too bearish? Are you neutral which means you can afford to take a bullish position here and there? I mean, look. That's the fun of trading, is being sometimes bullish on something and bearish on something else. That's part of it. You love Tesla, you hate Tesla. You like Facebook, you don't like Facebook. It doesn't matter on individual trade by trade basis, but as long as the overall portfolio has some pretty good balance.

Hopefully you'll see now that my answer although may have upset you initially and you're like, "Kirk, come on, man. Don't answer yes and no." But hopefully you understand why I did that here initially in the beginning of the show because I think it's really important. If this helps out, let me know. Shoot me an email. Shoot us a message on Twitter or Facebook, etcetera. If you think that this is helpful for others, please share it. Let everyone else know. Share it with your friends or family, maybe somebody who's always a bear, always bullish on something. This might be a good episode for them to get started and start this options trading journey here with us at Option Alpha. Until next time, happy trading!

#118 - The Simple Difference Between American-Style & European-Style Options Jan 18, 2018

Show notes

Hey everyone, welcome back. This is Kirk here again at Option Alpha. Today, I want to talk about on the daily call, the simple difference between American-style and European-style options contracts. It's a very subtle difference, but like I said in the title of this show today, a very simple difference between these two styles of contracts. Now, most people will end up trading… If you trade options, most of you or the vast majority of the trading that you do will be on an American-style option contract and very few of you… Or if you even do most trading even as you start to scale, very few of the contracts that are out there are what's called European-style option contracts. Now, the difference between the two really comes down to exercise at assignment, when an option contract can be exercised or assigned.

American-style options which again is the vast majority of most ETFs, most stocks… Vast majority of contracts are what's called American-style. Those contracts can be exercised or assigned any time up until expiration. If you have a contract that's 30 days from expiration, somebody could decide if they wanted to… Not that it's likely to happen necessarily, but the choice is there. Somebody could decide to exercise or assign that contract with 25 days left until expiration, with five days or two days or seven days. Basically any point between the time that you enter into the contract and expiration, you can be assigned, you can exercise, you have that choice. On the other hand, European-style options limit that exercise or assignment choice to expiration, so one predefined point in the future. That means that if you get into a European-style option contract, then the risk of assignment or exercise is not present until expiration, meaning somebody can't choose to arbitrarily assign that contract early or exercise that contract early. If they wanted to do that, they have to wait until the expiration date in the future.

Now, where you see this most often is in index style options. The SPX, the RUT, the NDX, etcetera are all European-style contracts mainly because they're cash-settled. There's no need to have the ability to let them exercise early because you would get nothing. They're all cash-settled index options, meaning they settle to just the value of the contract related to the underlying price. You don't get shares of the S&P 500. There's no shares to get. You don't get shares of the Russell 2000. There's nothing there to get. Most of those styles of contracts are European-style because at expiration, we don't really need to do anything ahead of time with shares or contracts. That's why most regular options, I guess American-style options on ETFs and stocks have the ability to exercise early because there are underlying shares. You can buy the stock or short the stock. You can buy the ETF or short the ETF. There's dividends that are involved which might cause early assignment expiration.

That's why the fundamental reason why there's a difference between these two contracts. But again, unless you're trading in index or something along those lines, most of the stuff that you'll be doing and most of the trading we do at Option Alpha since we do a lot of ETFs and stocks is American-style. As you start to transition and start to scale up, if you do transition to the higher valued index options, then those are going to be what's called European-style. Hopefully this helps out just understanding this difference and this nuance. As always, if you guys have any questions, let us know. Until next time, happy trading!

#117 - How Many Shares or Option Contracts Should You Trade First? Jan 17, 2018

Show notes

Hey everyone, Kirk here again and welcome back to the daily call. On today's show, I want to answer the question, "How many shares or option contracts should you trade first?" I think this is a common question. It's probably a very simple beginner question that we get often which is like basically, "How big of a position size should I make on my first couple of trades?" I think in either case, whether you're starting out or whether you've been doing it for awhile, I think all of your trades should generally be small. When you're first starting out, when you're really getting your feet wet, trying to understand options trading or stock trading, I think your first couple of trades should be one share or one option contract, literally one contract. Now yes, that means that in some cases, it might not be as advantageous for commissions because maybe your broker deliberately has a commission structure set up, so that you trade more contracts which is a cheaper commission, but don't get sucked into that initially, don't get duped into doing that. What you want to do as you get started is you want to trade a small number of contracts, so that you get familiar with the consistency and the framework and the flow.

What we used to do actually… I relate this to football a little bit. When I played football in college, what our coach used to do every week as we were learning new plays and we had a new game plan is we would do what's called a walkthrough. A walkthrough is nothing more than literally walking through the play that you're about to do. If we learn a new play, we had new assignments, etcetera, we would literally walk through it multiple times and in fact, our coach would get mad if somebody jogged through it. He'd say, "Look. It's a walkthrough. It's not a jog-through." Because eventually, we're going to play this at high speeds, so we're going to be running and tackling and blocking, etcetera. And so, we're going to play it at high speeds, but you can't play high speeds unless you first learn to walk slowly. And so, we'd walk through lots of plays, we'd walk through lots of setups and we do this over and over and over again at nausea because we needed to get the fundamentals down first and I think that that's how you should approach options trading or stock trading. Trade one share, one contract and do that for a little while until you really get the fundamentals down and then at that point, you can start to scale up. But at no point should you ever really be scaling beyond 5% per position size. That's what we say, 1% to 5% risk sizing per trade, per ticker symbol. Don't ever scale up beyond that. Still keep everything really, really small.

As always, hopefully you guys enjoy these. If you have any questions, let us know. Again, this is first come, first serve for many of these things that we do here on the daily call, so if you have not gotten your question in, please go ahead and submit it over at optionalpha.com/ask or send us a tweet, send me a Facebook message, however you want to get in contact with me, a letter. We've had people do that before in the past. That's cool too. Whatever you want to do, get your questions in. Don't let them go unanswered because we're trying to help you guys out. Until next time, happy trading!

#116 - Can I Still Be Assigned Stock After I Close My Option Trade? Jan 16, 2018

Show notes

Hey everyone, welcome back. This is Kirk here again at Option Alpha and on today's daily call, I want to answer the question, "Can I still be assigned stock even after I close my option trade?" Look. This is going to be a quick one today because the short answer to this is no. Once you close your option position, there is no risk of assignment in that contract because frankly, you don't have the contract.

I wanted to answer this question because it came in and it made me realize there's still some nuances out there that I think people aren't clear on and I think it comes down to honestly just over-thinking things, so just not thinking through the process, assuming that there's always still this lingering risk. But again, everything is actually pretty black and white when it comes to options trading in the sense of contracts, expiration, closings, etcetera. In today's example, obviously, if you let's say sold an option contract and you collected a premium which is what we typically do as option sellers at Option Alpha, we sold a contract, collected a premium, then we are at risk of assignment because we basically are short an option contract. Now of course, we've done podcast before and many, many case studies that show that the risk of assignment is not as great as you think and that risk of assignment actually increases as you get closer to expiration and obviously, only if your contract is in the money. Typically, out of the money contracts do not get assigned and if they do, it's probably just somebody being frankly, not thinking through the process maybe and being a little bit dumb about it and just clicking a button they shouldn't have clicked. But in either case, the risk of assignment is not that great for selling options out of the money and only would be great as you get towards expiration and if your contract is in the money.

But as soon as you buy back that contract and close the loop if you will, this loop that we always have to close in trading which is we either have to buy first and then sell or sell first and then buy. Once you close that loop, there's no risk of being assigned stock. That's really the simple answer to this. And so, if you want to remove that risk of assignment, you close the option position. Where we see this happen where we would want to deliberately close a position, knowing that assignment is coming up is probably when it comes to dividend assignment for short in the money calls. If we ever have a short call option that's in the money and the stock or ETF has a dividend payment coming up, our contracts may be at risk of assignment. Not all the time. Maybe at risk of assignment. And so, that's where we would close the option position to remove that risk. If we close the position, then we're not at risk of being assigned the stock and that's really what it comes down to. Again, a very short one today, but hopefully this answers the question.

As always, if you guys have questions along these lines… Again, there's no question obviously I won't answer. I'm trying to answer as many questions as possible here on the daily call, on Facebook Live, on Periscope Live, etcetera, so please get your questions in (it is always first come, first serve) to optionalpha.com/ask. That's where you can submit a question to me. You can send us a message, leave us a voicemail, shoot me an email, tweet, Facebook, whatever you want to do. Get your questions in because that helps us make sure that we get the right answers to you guys moving forward. As always, hopefully you enjoyed today's show. Until next time, happy trading!

#115 - We Built Option Alpha To Serve This One Type Of Investor Jan 15, 2018

Show notes

Hey everyone, Kirk here again. Welcome back to the daily call. Today, I want to take one step back as we're getting started in January and again, just let you guys know a little bit more inside into Option Alpha and in particular, I want to tell you why built Option Alpha to serve this one type of investor. I say "type of investor" because I truly think it's one type of personality that honestly we all share. If you're listening to this podcast, I 100% believe that we all share this one characteristic or trait amongst all of us. No matter where we live and what we do and what age we are in, I think we all share one thing and we built Option Alpha, I'm continuing to build Option Alpha to serve just this one type of person. I say this in all honesty because I don't want to serve everybody. If I serve everybody or if I built Option Alpha to serve every type of investor, I'd ultimately end up serving nobody. This is why sometimes although we take recommendations, I tell people oftentimes, "There's things that we either can't do or we choose not to do." We could do, but we choose not to do for one reason or another because it doesn't work within the framework of who we're ultimately trying to serve, the person that ultimately is going to get a lot of value from using Option Alpha and being part of our community.

We built this company for a certain type of person and for not all people and this is the type that we built it for and it really comes down to just one simple sentence that I wrote many, many years ago which is, "I wanted to build Option Alpha for the investor who's confident, they care more about their money than anyone else." It's frankly as simple as that. Everything that we do here at Option Alpha that I have tried to do at Option Alpha and will continue to evolve for in the future is basically for myself. I say that selfishly in the sense of saying, "I'm doing this because I'm building what I wish I had 10 years ago and I continue to build tools and do research because it's frankly what I'm interested in doing along with everyone else." Everyone is interested in doing it and there's little nuances and I add features that people request that I would necessarily get a lot of value out of, but I think that everything that we are doing here at Option Alpha, I'm doing because I'm a retail regular trader like you guys and I think that's a big differentiator. I don't have this massive affiliate association with any company or broker or anything like that. I'm a retail guy. I'm a regular trader just like you guys are. And so, I'm building Option Alpha because I wish I had this stuff before when I started. I wish I had this research. I wish I had the software tools that we built in our Toolbox. It's all because I think we all care more about money than anybody else and that's a good thing.

I think that nowadays, there's obviously people out there who give their money to a financial adviser or to somebody, a brother, a sister, it doesn't matter or they don't do anything because they don't care about their money. It's just not as an important topic as maybe we think it is. It doesn't have to be money. It's wealth, it's income, it's freedom, it's everything associated with that that goes along with it. But I think that Option Alpha people, the people that we've surrounded ourselves with here at Option Alpha are the same breed. I mean, we're all the same breed. We care more about our money and think we can do a better job managing our own money than if somebody else had our money. Our interests are more appropriately aligned because it's our hard earned money, it's the thing that we took time to go to a job or time out from family or worked an extra weekend or an extra shift to earn and we care about that and I care about that. And so, that's why we're building Option Alpha.

And so, for that reason, we'll never be everybody's source and I'm okay with that. I'm okay not being a jack of all trades. I want to be master of a couple and I think that the Option Alpha type of person that's in our community and probably the type of person that you are is that type of person who cares more about your money than you think everyone else does and that's good. That's okay to be selfish in that regard because I think you make better decisions about your own money and your own wealth and your own financial position and have a better holistic view of it than somebody else might have even if you had an adviser or somebody that you talk to. And so, that's the type of people that we're building it for and we're building out tools to make that easier for you. We're giving you research to make that easier for you, to basically clear that path for you, so you can do this faster and simpler than you could before in the past.

Hopefully that helps out. Again, the idea of doing this is not to necessarily always talk about what we're doing, but people have a lot of questions about Option Alpha and why we build it, what our business model is, how we generate money. I'm trying to answer these on this daily call here and there because I think it's important. I think you guys should know how we do things here and why you should hitch your wagon to this train. As always, hopefully you guys enjoy these. Until next time, happy trading!

#114 - Money Doesn't Come From Effort Or Hustle Jan 14, 2018

Show notes

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to talk about why money doesn't come from effort or hustle. I think that we are in this huge market period or I don't know, just like social media period where everything you see… It just drives me banana sandwich sometimes when I open up Facebook or Twitter or Instagram and browse and I see all of these people hustle, hustle, hustle, it's like #hustle everywhere and I'm thinking to myself, "Yeah. There's a time and place to work hard. No doubt. I'm not discounting the value of hard work. But I think people don't associate or shouldn't associate money coming from effort or hustle."

There's a comfortability in working long hours and I think that's where it comes from. People think, "If I work long hours, I will generate more money, so therefore, long hours equals more money." But it's not the point. The point is that you have seasons of hard work that come and go. I even go through this here personally. I have seasons where I want to focus on one thing and then sometimes I just don't want to do that thing. I don't want to write or I don't want to do a podcast this week or whatever the case is. I just go through seasons of that. But that doesn't mean that I should just hustle, hustle, hustle and do something for the sake of the hustle, so that I can get my hours in, so I can work longer hours. I want to work smart hours. I frankly don't want to work that many hours unless it's on the things that I want to work on, that I really am passionate about, that I have good expertise in, that I think can add value. And so, I see people all the time… I think more so nowadays, is everyone is trying to keep up with each other, so trying to hustle and work harder and post about hustling and working harder which is so asinine and ridiculous and it's only for the sake of just getting in a lot of hours because they have some other complex or other downfall that they can't figure out what the best things are to work on at the moment. Now, I'm not saying I'm perfect by any stretch, but I continuously try to figure out a way to work on the most important things every single day, the things that really move the needle. It's tough for me because sometimes… I'd say sometimes. I'm a perfectionist by nature. It's just who I am. It's how I was raised. But that means that sometimes I have to let go of being perfect at something for the sake of focusing and working on the most important thing, the big domino that needs to be knocked over today.

What I've learned in life up to this point… You guys can either back me up on this or contradict me. Either way, start a discussion on this because I think it's really important and this whole talk of money and hustle I think is important, so let me know on social media and let's start a discussion on this for sure. But I believe that money comes from asking questions. I think that wealth comes from asking the right questions and trying to figure out a solution to that question. I don't think people are asking questions anymore. I don't think people spend time thinking anymore. One of my favorite pastimes if you will is to frankly just sit down and think and I don't think people spend enough time doing that. They think that that's inefficient, that thinking is inefficient, that if I'm sitting down and just frankly staring at the wall and thinking for an hour or 30 minutes that I could be doing something else, that I could be hustling. But I truly believe that focusing that time and figuring out what the most important thing is to focus on and work on at the given moment is more valuable because when I do have time, when I have focus time to direct my energy, direct my effort and my hustle if you want to call it that, I'm really working on the most important thing and I'm not just basically running around. Like my mother would say, "Like a cat on a marble floor." Really, lots of activity, but not really getting anywhere at the same time.

That's my takeaway for you guys today, is make sure you're asking questions, asking really big questions and trying to figure out solutions to those questions and that can be in everything. I mean, it doesn't have to be money or wealth or finances. It could be in your relationships. It could be in parenting, work, family, religion, school, anything. Just ask bigger questions and try to figure out solutions to those questions, try to figure out the quickest path, the most efficient path that gets you the biggest results and then focus all of your time and energy on that and then ask another question and focus your energy and time on that. That's what we've been doing here at Option Alpha and I think if you go back and look at what we do, is we're asking lots of questions and trying to figure out solutions to those questions which doesn't happen overnight, but questions that originally started like, "Why isn't there free options trading courses? Why aren't there free options trading courses? How can we do that? Does technical analysis work?" That was the big question that I had that eventually started this long journey of research. Then we had a question like, "How come there's no good software for options traders for back testing? Does this strategy work in this environment versus this strategy? How do we know? Why don't we know? What do we need to know?" Those types of questions I think eventually lead to a lot of valuable insights and ultimately, when you answer questions and provide value, that's where you start to see everything in your life really improve. It doesn't have to be money or wealth necessarily.

Hopefully that helps out. As always, let me know. I'd love to start a discussion on this on Twitter, Facebook, YouTube, Instagram, wherever you want to find this, wherever we are at Option Alpha. But I think this concept is really or this topic is really forefront right now. I see a lot of people talking about it and I'd love to know your opinion. Let me know. Reach out to us on social media. Until next time, happy trading!

#113 - Stock Market Forecast - Legit Or Bogus? Jan 13, 2018

Show notes

Hey everyone, Kirk here again and welcome back to the daily call. Today, I want to talk about stock market forecast and just really try to find out if they're legit or bogus. I think that especially as we get started with 2018 and we're just even still in the first couple of weeks here, a lot of articles that have been coming across my desk, whether people are tweeting at me or sending me messages or all these expectations of where the market is going to go and it's ironic and funny and I see this on my end more so than maybe you guys see this on your end. But I get everyone's opinions and that's good for me because I realize everybody has different opinions. I don't see any consistency in everyone's opinions, meaning I get articles that are sent to me or news stories, whatever that the market is going to blow up another 20% and go up another 20% this year and then I get literally the same five minutes… I think the two emails that I'm looking at right now, one's a message, one's a tweet that somebody sent me. But literally within five minutes, I have one article where the market is going to go up 20% and one where the market is going to crash. I mean, this is the dynamic that I get on my end which is good for me to see. This is why I continue to do this because I see these different patterns or these different thought processes evolve over time.

But look. I think when it comes to a stock market forecast, I think it's insanely hard to predict where the market is going to go and moreover, I believe that we get what we least expect. Like for sure, last year in 2017, I don't think anybody expected the market to be as strong as it was and for whatever reason, it doesn't matter because it's all over now. The market was very, very strong and I'm talking about the broad stock market. Heading into that year, I don't think anybody expected the market to be that strong. I don't think I expected the market to be that strong. And so, we get what we least expect and I believe that people continue to expect the market to be very strong as a whole. And so, for that reason, I've always thought that we are going to get either a very hard at some point or a very tough correction or basically, many years of flat growth.

When I talk to a lot of people about the market, everyone assumes the market is always going to go up. It's like we totally forgot what happened in 2007 and 2008. It's like that never happened before and in fact, some people have just started trading options and are just starting to develop their mindset and framework and have never ever lived through any market correction, crash, etcetera. And so, if you haven't gone through that before, you don't know what to expect. I mean, it's very much like parenting. If you've never changed a diaper before, you don't know what to expect when you open up those tabs. And so, until you actually do that, then you know like – "Hey. This could be bad." Especially in diapers. I think the same thing happens in markets. I think stock market forecast are not necessarily bogus, but I don't think you should put a lot of weight into them. Everyone's got a forecast, everyone has an expectation, but ultimately, we have no idea where the market is going and that in and of itself is insanely powerful if you think about it.

As options traders, we have the insane luxury of being able to generate money on a 30, 45 day timeframe and for that reason, the long-term prospects of the market I could frankly care less about. I've told people this all the time. I don't ever care at this stage in my life where the market goes because wherever it goes, I know I can generate money trading options around that market price. If the S&P was 50% lower or 50% higher, it frankly doesn't matter to me. It frankly doesn't matter to me because I know that that is going to take time to get to. Even the market "crash" that we had in 2007, 2008 took time to evolve. I mean, it didn't happen overnight. Yes, there were days that the market was down 5%, there were weeks that the market was down I think 7% or 8% and had wide ranges, but it wasn't like a 50% correction happened in one week. Not even close. It took many, many months for that to evolve. And so, as an options trader, we have the insane luxury and you guys don't realize how much of a luxury this is until you go through an event like this which we haven't been through in over 10 years now. You don't realize how much of a luxury it is to be able to consistently and very easily adjust your portfolio down with the market or up with the market if we continue to rally and generate money around a given range.

And because most people, as investors, they basically make their investment and it's one time or a couple of times a year, it's one line in the sand and then they've got all of these prospects for the next 20 years. They don't do anything to adjust. It's kind of like they try to set it and forget it and that's a really bad way to go about it and I think eventually, that is going to be something that we look back on as maybe this indexing phenomenon that people have and this concept of just "Put the money in the market and let it go forever." That I think scares me that too many people have gravitated towards that mentality of just "Set it and forget it. Never monitor. Never adjust. Never do anything. Just constantly buy, buy, buy, buy, buy." That type of mentality I think is something that concerns me and I think that people get what they least expect. Right now, I think expect the market to always go up and have a "Set it and forget it" mentality. That's not where I think we're headed. I think whether we do it this year or next year or whatever the case is, I know I'll be proven right in the sense that we have years of volatility still left, probably many years of volatility and markets never go straight up and straight down. Take it with a grain of salt. Take it however you will this week. I guess use options trading as a good vehicle to not have to worry about any of that stuff honestly. Hopefully you guys enjoyed this. As always, let me know if you guys have any comments or questions. Until next time, happy trading!

#112 - Can We Roll Inverted Strangles From One Month To The Next? Jan 12, 2018

Show notes

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to answer the question – "Can we roll inverted strangles from one month to the next?" The simple answer to this question is – Yes. Of course, you can roll your inverted strangles from one month to the next or one expiration period to the next. The question now is going to become – "Can you roll them for a credit?" Meaning you don't want to pay to roll the position.

Here's how I would generally set it up and just walking through how I would think about it as we roll positions. We've done this before in the past, so it's not something that we haven't done. We've done it a bunch of times and it generally works out pretty well when you extend your trade and give yourself more time. Let's say we have a position. For whatever reason, we got inverted on the position, meaning our calls are below our put strikes. We go inverted. Let's say we're inverted by $2, so a very small inversion. Sometimes we can get inverted by more than that, but let's say we go inverted by $2. Our short puts are say 102, our short calls are at say 100 just to make the math and the thought process easy. If that happens, then the minimum value of that inverted spread would be $2. At expiration, remember that inverted strangles and spreads like that can never trade below the width of the inverted strikes. If we're $2 inverted, then it's never going to be worth less than $2. Now at expiration, let's say that we still want to make back some money on that trade and we think for some reason that the stock may stay in that range or may stay very tight in that range, whatever the case is. And so, we want to roll that position to the next month.

Now, the key is going to be – Can we roll that position to the next month for a net credit? That means that we're going to have to buy it back for something more than $2 right now just to close the front month contracts and we're going to want to resell the next month contracts for something more than we paid to close the front month if that makes sense. We're going to close the front month contracts, we know we're going to pay more than $2, we want to pay as close to $2 as possible, but we know we're going to pay more than that unless we hold it right up until expiration and then we want to sell the back month options for more. In most cases, you can do this. Now, I'm not saying all cases, obviously. You got to check the pricing and make sure you can do it. But in most cases, you actually can roll these inverted strangles from one month to the next for additional credits.

Now, why would we want to do this? Well, if you go back to some of the other podcast that we've done, especially even Facebook Lives and on our weekly podcast, we did a huge show, I think Show 111 or 112, somewhere in there on which is actually kind of ironic because I think this is the daily call, is 112 today. But somewhere around there too on the weekly show, we did a huge talk about going inverted and pricing, etcetera. When you go inverted, it doesn't mean that you're guaranteeing a loss. Most people think that. But in this case with the example that we have today, if we go inverted by $2, we might have still collected a net credit of $3. Even though we're inverted by $2 and we have to pay $2 regardless, our net credit is still $1. Well, if we can roll for a credit of say another $1 to the next contract month, then we've taken in a total credit now after rolls of $4 and now, we've actually increased the amount of money that we could potentially make and widened our breakeven points, gave ourselves more time, whatever the case is for the next month.

This idea of just continuing to collect credits is really, really important when you're managing positions and considering to roll them from one month to the next, especially with inverted strangles, inverted straddles, iron butterflies, etcetera because we want to increase our overall credit which helps pad or widen our breakeven points for the next month. If you can't roll for a credit, it's not worth doing. I've said this a number of times. It is not worth paying to roll to the next month. It's just worth it to close the position, start over fresh. Chalk it up, scratch it up as a loss and move onto the next position. Reset the probabilities and try to do it again. Don't quit. Just try to do it again. Reset the trade. Hopefully that helps out.

Again, if you have any questions on rolling positions, let us know. Shoot us an email, send us a tweet, post it on Facebook, however you want to get in touch with us, obviously, let us know. We'll make sure we get your questions answered. As always, hopefully you guys enjoy these. Until next time, happy trading!

Our TOPPODCAST Picks

Follow Us

Stay Connected

The “Daily Call” From Option Alpha

Related Podcasts

Links

Stay Connected